Intu Properties impresses with rent growth, but industry shock eyed
Intu Properties expects another year of rental income growth after a solid third quarter, but analysts were concerned about the potential industry "shockwaves" for the shopping centre developer by the impending discounted stake sale at a rival.
FTSE 250
19,719.37
17:09 24/04/24
FTSE 350
4,419.71
17:09 24/04/24
FTSE All-Share
4,374.06
16:44 24/04/24
Intu Properties
1.78p
13:56 29/06/20
Real Estate Investment Trusts
2,217.03
17:09 24/04/24
The FTSE 250 group agreed 73 leases between 1 July and 2 November for £13m of annual rent, which is up 5% above previous passing rent, though down from the 7% growth in the first half of the year.
Intu also announced on Thursday that it has sold a 50% stake in Chapelfield shopping centre in Norwich for £148m, a 3% discount to its book value at the end of June.
LaSalle Investment Management now own half of Chapelfied as part of a new joint venture, with Intu continuing to manage the 90-store centre.
For the group as a whole, chief executive David Fischel anticipated achieving a third year of positive like-for-like net rental income as he said Intu's 20 "prime centres" continued to attract international and national retailers.
Intu completed 47 rent reviews in the period at an average uplift of 15% on the previous rents, with 164 reviews completed in 2017 to total £36m, 10% above previous rents.
There was £850m of cash and banking facilities available at 30 September, reduced by the repurchase of £140m of the £300m 2018 convertible bond but since boosted by the Chapelfield stake sale.
Fischel admitted that retailers "continue to be selective with their expansion plans in the challenging consumer environment" but said Intu's centres "are the first port of call because of their strong catchment, reliable footfall and differentiated leisure content".
As such he felt the group was "well positioned to take advantage of this demand" and was confident of growing like-for-like net rental income in 2018 and at a level of 2-3% over the medium term.
Shares in Intu rose more than 5% to 224.5p in the first hour and a half of trading on Thursday.
With little backing data as to which leases are being renewed, such as heavily discounted leases or rack-rented leases, analysts at Numis believe that an initial positive reaction to the update may ebb away, with persistent concerns about the structural challenges faced by the UK retail market.
Ultimately, Numis said there "remains material concern" around the balance sheet valuations of Intu's centres, "which we do not believe will be assuaged by the sale of a 50% stake in Chapelfield at only a modest discount" after a protracted period of negotiation.
The analysts expect the impending sale of a 42.5% stake in Land Securities' Bluewater by GIC and Lend Lease for a reported.10% writedown "has the potential to send shockwaves through the prime shopping centre market" and put Intu’s already "over levered" balance sheet under further pressure.
At the half year stage Intu's debt to assets ratio stood at 46.9%, with £10.1bn of property and £4.75bn of debt.